By Ian Chua
SYDNEY (Reuters) - Japanese stocks turned negative on Friday and the yen reversed early losses, keeping intact worries that the Nikkei's largest one-day drop in two years may be the start of a bigger rout.
In a sign that many are still spooked by Thursday's eye-watering 7.3 percent Nikkei drop, share markets elsewhere in Asia extended their decline to a fresh one-month low.
MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> shed 0.6 percent, extending Thursday's 2.2 percent fall. Australian shares <.axjo> underperformed the region, falling 1.9 percent.</.axjo></.miapj0000pus>
"There's a lot of volatility... from Japan, which is jumping around 20 or 30 points at a time, which is not good for market stability or confidence," said Stan Shamu, market strategist at IG.
Tokyo's Nikkei <.n255> was down 0.6 percent on the day, having earlier risen more than 3 percent.</.n255>
Still, it has soared some 60 percent since mid-November, when Shinzo Abe, who became prime minister the following month, proposed aggressive monetary and fiscal policies to revive the world's third-largest economy.
Some analysts remained optimistic about its outlook.
"It's just a speed bump, in my view. The Japanese market is due for a technical correction after strong returns we have had this year," said U.S.-based Audrey Kaplan, fund manager of the $656 million Federated InterContinental Fund.
"The economic conditions in Japan are substantially better than they were a few months ago. That will support the market going forward," she said, adding that she has increased Japan weightings in her fund to 20 percent from 14.9 percent at the end of March.
Thursday's dramatic moves followed HSBC's preliminary "flash" survey that showed Chinese factory activity declined in May for the first time in seven months and Federal Reserve Chairman Ben Bernanke hinted the U.S. central bank could soon scale back monthly bond purchases.
Two senior U.S. central bankers have since sought to soothe market fears, saying the Fed will not hastily withdraw its policy stimulus and the pace of bond purchases could be adjusted up or down depending on how the economy fared.
Bank of Japan (BOJ) Governor Haruhiko Kuroda on Friday said the bank had no specific targets for stock prices and the level of the yen and will not comment on day-to-day moves.
Kuroda said, however, that the bank will try to tame volatility in the bond markets through flexible market operations and enhanced communication with participants.
Among the major currencies, the yen rose as the Nikkei trimmed gains. That saw the dollar fall 0.1 percent to 101.81, while the euro shed 0.4 percent to 131.45.
Commodity currencies such as the Australian dollar were off lows, but their outlook remained shaky given worries about Chinese growth.
The Australian dollar fell 0.9 percent at $0.9655, but was off Thursday's trough of $0.9593. Support is seen around the 2012 nadir of $0.9581, and a break there would take it back to lows not seen since October 2011.
Commodities were trying to recover from Thursday's fall, with copper up 0.2 percent at $7,317 a ton following a 2.3 percent slide.
Brent crude was flat at $102.40 a barrel, having plumbed a three-week low of $100.64 in the previous session.
(Additional reporting by Dominic Lau in Tokyo; Editing by Eric Meijer)